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Ed's Blog

Many are aware of the great work the Consumer Financial Protection Bureau has been doing since it was set up just over five years ago. It has already provided consumer refunds or other relief totaling nearly $12 billion to 29 million consumers harmed by unfair practices by big Wall Street banks and others breaking the law and harming consumers. While a 2016 highlight was its $100 million fine imposed on Wells Fargo for setting up millions of fake accounts, it has kept up its good work in 2017, including lawsuits filed against TCF Bank for its overdraft schemes and the student loan servicer Navient for “failing” student borrowers.

But the CFPB has also, virtually from its standup in 2011, taken a very close look at the so-called Big Three credit bureaus — Experian, Trans Union and Equifax. Why? The credit bureaus have long acted as unappointed gatekeepers to financial and employment opportunity. The CFPB is beginning to bring them to heel. CFPB’s work on cleaning up the credit bureaus is yet another reason that weakening the CFPB, as some in Congress are clamoring for, would harm consumers and the economy.

Congress recognized as long ago as 1970 that the credit bureaus often abused their tremendous marketplace power when it enacted the well-structured Fair Credit Reporting Act, but it never gave the Federal Trade Commission the tools it needed to enforce the FCRA. Even though the FTC has done much important work, including documenting credit bureau mistakes, it never was able to change their practices.

Since 2011, the CFPB has focused on the credit bureaus:

— Director Cordray has done numerous speeches where he talks about the credit bureaus (and debt collectors, too) as dead-end markets. Here’s an excellent speech, where the director first explains the run-up to and need for the CFPB as well as its focus on what he calls the “four Ds”: Debt Traps, Discrimination, Deception, and Dead-End markets. Remember, you can choose your bank and you can vote with your feet if you don’t like it. You’re stuck, however, with the credit bureaus. Their mistakes matter to your financial and employment opportunity.
— The CFPB’s very first action to create a “larger participant rule” in 2012 gave it authority to supervise, or examine, the larger bureaus.
— In 2012, the CFPB issued a major report on the “dimensions” of the consumer reporting system. A finding (see footnote 104) of that report, as a senior credit bureau lobbyist was forced to admit at a subsequent 2013 Senate hearing, was instrumental in forcing the Big 3 to finally include information submitted by the consumer in their re-investigations.
— The CFPB’s Monthly Complaint Database “snapshots” regularly list the credit bureaus as 1, 2 and 3 on the complaint parade (while last month’s edition drills down into credit bureau complaints, note that Wells Fargo sneaked in for the “win” after its fake accounts debacle).
— Last week, the CFPB issued a special edition of its “supervisory highlights” outlining all the problems examiners have identified with credit bureaus. The report is only possible because the CFPB has examination authority that Congress never gave the FTC. The report lists a platform of CFPB-demanded changes to the credit bureaus’ “sub-par” procedures to both clean up their reporting systems and force them to improve their complaint-handling.

This week, Chi Chi Wu of the authoritative National Consumer Law Center released an analysis of the findings of that CFPB highlights report:

“The report confirms the long-standing and extensive criticisms that attorneys and advocates have had of the Big Three CRCs [Consumer Reporting Companies] over the decades. As CFPB Director Richard Cordray characterized it, "Standards on the accuracy of information in consumer credit files were distinctly sub-par."

Chi Chi Wu goes on to explain further that the report “also sets out reforms that the CFPB is directing the Big Three CRCs to implement. This is where it gets exciting.” Check out the short NCLC paper for more.

You can also read Director Cordray’s full remarks on the report to the CFPB Consumer Advisory Board last week.

“Consumer reporting, also known as credit reporting, is an important market that for many years has not been very transparent and generally is not well understood by consumers. It is also one of the markets where people cannot vote with their feet by choosing another provider if they are dissatisfied, which means that industry incentives and practices are not always aligned with the interests of consumers. It is a business-to-business ecosystem where consumers traditionally have had little power to insist on improved practices or fair treatment. Nonetheless, the data managed by the consumer reporting companies – and the scores generated from that data – exert a tremendous influence over the ways and means of people’s financial lives.”

So, let’s be clear: Weakening the CFPB will weaken your financial and employment opportunity. It means mistakes on your credit reports will continue to haunt you and lower your credit score. Weakening the CFPB will allow the credit bureaus to run amok again, laughing at consumers and the regulators as they did for years.